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South Africa hopes to boost shipping with tax reform

South Africa has some of the busiest ports on the continent but no commercial ships, but officials hope a new tax regime may give it an entry into the multi-billion-dollar industry.

The flight of merchant ships from the national register started in the early 1980s, with companies citing uncompetitive tax regulations.

But it was not until 2005 that government tabled the tonnage tax bill — a taxation regime used by the majority of maritime nations, and preferred by ship owners.

“The research and consultation process has been finalised. The tonnage tax regime will kick in in 2013. We hope this will attract merchant vessels back into the country,” SA Maritime Safety Authority chief executive Tsietsi Mokhele told AFP.

“Talks on the tonnage tax were introduced when it was already late, when we already had no ships registered under the South African flag,” said Mokhele.

The tonnage tax model allows vessel owners to pay a fixed tax rate, based on the size of the ship and working days. The current system taxes profits at 28 percent, with a further 10 percent secondary tax based on dividends.

“The shipping industry is an international industry where managing costs and extracting globally competitive service from a register is of paramount importance,” said Fred Jacobs, spokesman for Safmarine South Africa.

The Copenhagen-headquartered cargo carrier is one of the companies with strong local ties, like Grindrod and Ocean Africa Container Lines, that have opted for foreign registers.

Safmarine had expressed concern at the delay in the implementation of reforms, saying “it was not economically viable to register ships under the South African flag”.

“We have also made a commitment to revisit the flagging of our vessels once the South African government has addressed issues such as the tonnage tax,” said Jacobs.

Safmarine vessels are flagged in Belgium, Britain, Hong Kong and Singapore. South Africa makes up about 40 percent of the company’s activities in Africa.

In an address to a transport committee in parliament last week, Mokhele said 98 percent of the country’s total import and export trade was carried by foreign ships, meaning South Africa last year lost out on 45 billion ($5.6 billion) in potential business.

“We are almost 100 percent dependent on foreign shipping to get our goods to the market,” said Mokhele.

Maritime exports make up 95 percent of total exports by volume, going through the eight ports dotting the approximately 3,000-kilometre (1,900-mile) long coast.

South Africa’s main exports include minerals like gold, platinum and coal, as well as agricultural products and vehicles.

“There is no reason for ship owners to register their ships here. The current tax regime is not competitive, as a result companies register their vessels elsewhere,” said Andrew Thomas, chief executive of African Container Line.

“Singapore is the most convenient country to register and own ships,” he added. Shipping companies in Singapore are exempt from corporate income tax.

South Africa’s non existent commercial vessels register leaves it poorly placed against its coastal peers in the BRICS grouping, with China boasting 2,044 ships, Russia 1,891 vessels and India 534, according to SAMSA.

During the 1970s, 52 commercial vessels carried the country’s flag. Today only patrol vessels, fishing and tug boats remain.

The tax reforms coincide with the planned upgrade of the country’s ports, as part of the government’s $40 billion building spree announced by President Jacob Zuma earlier this year.

The Port of Durban, on the east coast, which is the busiest container port on the continent, will be expanded to boast capacity, as well Richards Bay, which houses the world’s largest coal terminal.